The Housing Finance Company Limited (HF) has been reported to be seeking a bailout from its new investors which were unnamed. The mortgage finance provider is looking forward to boosting its capital and liquidity position, being the largest economy in the East Africa Community. The HF company is known as the only mortgage company controlled by the Central Bank of Kenya, the Central bank and the National banking regulator.
The company in recent years has been making losses which have been linked to the slowdown in the real estate sector and also the interest rates controls that were revoked in November 2019.
One of the top shareholders in the company, insurer Britam Holdings with 48.22% stake reported in an annual report that there were ongoing consultations with investors to add tier two capital, also known as subordinate capital. It’s also in the report that they made it clear to be expecting a Ksh 1 billion from its new investors.“The group is expecting an Sh1 billion tier two capital injection in 2020 which will take the ratio back to compliance,”
Last year, the HF firm’s tier two capital decreased by 18.4% by December to Sh558.49 million, which is below the minimum capital requirements. The HF capital/total risk-weighted assets ratio in march the same year fell below the minimum statutory requirement of 14.5% to 13.68% set by the central bank of Kenya. This ratio is important in proving a firm’s ability to absorb losses before being declared insolvent hence putting depositors’ money at risk.
In an interview on phone with the business daily, the managing director of the company said that there has been good progress on the efforts to raise capital. He also added that we should be expectant of a formal announcement on the matter, which would improve both the capital and liquidity ratio.
Although the prospective investors were not named, the proposed deal was a pointer to Britam not willing to add tier two capital to HF investment.
Initially, the insurer Britam Holdings invested more than 5 billion to acquire the HF stake but later things took a different turn when the firm started making subsequent losses, pushing the insurer to write off a total of sh2.8 billion in December 2018. It is reported that Britam built its HF stake through several deals, one of them being buyout of Equity Group’s 24.7% ownership in the year 2014 for 2.8billion.
East African Development Bank, European Investment Bank and Shelter Afrique are also some of HF’s core debt investors.
An investment analyst at Genghis Capital predicted that HF is likely to turn to development banks for long term loans. “Banks prefer a mix of debt and equity in their tier two capital”, he said.
The last profit made by the HF firm was back in 2017.
This year, the company started with a net loss of 0.63million in the first quarter of the year. Last year at a similar time, the company made a loss worth Sh158.29 million. Sources have it that the company’s liquidity ratio fell below the minimum requirement of 20% before improving to 21.3% at the end of March this year. The weak capital and liquidity ratio leads to the bank breaching the terms attached to 5.8billion worth of loans of different financiers. HF is now said to be negotiating for waivers of the covenant.
HF is on its transformation from a property developer and mortgage financier to a mainstream bank following the challenges it has faced in housing and commercial real estate business. For this to happen, however, the bank needs considerable capital.